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Marital Property Division

Issues with Valuing Private Medical Practices

When doctors engaged in the private practice of medicine are involved in a divorce or legal separation, they may wonder what will become of their medical practice. Like other businesses, medical practices are generally divided in a divorce according to California's community property laws.

This raises business valuation issues since the doctor's medical practice will need a dollar value assigned to it before a court can divide it properly. Putting a value on a medical practice can actually be a complicated affair.

At its most basic level, assigning a value entails assigning the right multiplier to the average annual revenue of the office to come up with a hypothetical fair market price. The trick, though, is determining what that right multiplier is.

Moreover, what the correct multiplier is can change as time goes on or market conditions in the local area change.

Furthermore, a doctor's reputation matters a great deal when it comes to the value of his or her practice. Among other things, the reputation affects what economists call goodwill. In this context, goodwill measures how likely it is for customers to return to the same doctor or refer other people to that doctor.

Although goodwill really does add value to a business, it is very hard to quantify because things like a doctor's experience, skill and reputation are highly subjective.

While it is good for even happily married or single doctors to have a basic understanding of how much their business is worth, the details of coming up with an estimated value in a divorce or separation can involve a lot of complexities. Getting the right legal help and expert advice may be important.